Analysis of Microsoft’s FY24 Q2: You Can’t Spell Activision Without AI (Premium)

Yesterday, Microsoft reported a net income of $21.9 billion on revenues of $62 billion for the second quarter of its fiscal year 2024. Here's a more detailed look at this quarter that draws on the additional information Microsoft provided during its post-earnings conference call, with the usual emphasis on the consumer businesses that we care about the most here on Thurrott.com.
The raw numbers

Overall earnings: Net income of $21.9 billion (up 33 percent year-over-year) on revenues of $62 billion (up 18 percent YOY)
Intelligent Cloud: $25.9 billion in revenue, up 20 percent YOY
Productivity and Business Processes: $19.2 billion in revenues, up 13 percent YOY
Personal Computing: $16.9 billion in revenues, up 19 percent YOY

The impact of Activision Blizzard
More Personal Computing houses Windows, Xbox, and Surface, and while it has long been the smallest of Microsoft's business units by revenue, it has suffered more dramatically in the post-COVID era thanks to falling PC and Xbox console sales. So it was not surprising that More Personal Computing brought up the rear yet again in terms of revenues. But the gap between it and Productivity and Business Processes closed significantly, thanks entirely to Microsoft's acquisition of video game giant Activision Blizzard.

This is, I think, the biggest news of the quarter.

That said, it wasn't entirely unexpected: Last July, I ran the numbers on how Activision Blizzard would impact More Personal Computing specifically and Microsoft more broadly, and my conclusion from that time was that Activision would improve More Personal Computing's standing against Microsoft's two other business units, but not even to make it the second-biggest Microsoft business unit. As for Microsoft generally, I expected Activision Blizzard to contribute to 4 percent-ish in additional revenues in any given quarter (above whatever other factors contribute to those numbers).

And that's exactly what happened.

Had Microsoft not completed its acquisition of Activision Blizzard, More Personal Computing revenues would have grown just 4 percent YOY to $14.25 billion, according to the numbers Microsoft provided. And Microsoft's total revenues would have been just $59.3 billion, a difference of just ... wait for it ... 4.3 percent. Look at me doing math!

But Activision's contribution to More Personal Computing is enormous, with over $2 billion in additional revenues overall. Consider that Xbox content and services revenues grew by 3, 5, and 13 percent in the previous three sequential quarters, but then grew by 61 percent in this Activision Blizzard-infused quarter. Had this acquisition not occurred, Xbox content and services revenues would have grown by less than 13 percent, and that was a holiday quarter.

There are expenses related to the acquisition, of course, and, no, I'm not talking about the $69 billion that Microsoft paid for this company, as that was accounted for long ago. Activision Blizza...